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October 8, 1992 - Drove my Chevy to the levee

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AS-1

I live for the CABE

Schwinn, Venerable Bike Firm, Files for Bankruptcy : Business: Company vows to remain in operation, but it seeks a merger or investor to restructure its debt.​

BY DONALD WOUTAT
OCT. 9, 1992 12 AM PT
TIMES STAFF WRITER

Schwinn Bicycle Co., whose Phantom, Sting-Ray, Varsity and other gleaming two-wheelers taught the sensation of freedom to generations of American youngsters, filed Thursday, October 8, 1992 for federal bankruptcy court protection.

The venerable Chicago company, founded in 1895, owns just 7% of the U.S. bicycle market compared to 25% during its 1950s heyday. The company said it needs to restructure its heavy debt and might need to seek a merger.

The family-owned company vowed to remain in business, and its bicycles retain a solid, if stuffy, reputation. But Schwinn’s woes were lamented across an industry that it still personifies for many Americans.

“It’s a sad day for the bike world,” said Mike Sinyard, owner and founder of Specialized Bicycle Components in Morgan Hill, Calif., whose 1981 Stumpjumper launched the mountain bike craze that has revolutionized the industry.

Edward Schwinn Jr., president and chief executive, blamed Schwinn’s problems on $75 million of debt the company took on in the 1980s and said the firm could no longer afford the burden in today’s weak economy.

But cycling enthusiasts say Schwinn missed the turn in the market to lighter, more sophisticated machines that helped trigger a cycling and fitness boom in the 1970s. While the market continued to expand in the 1980s, Schwinn’s sales remained stuck in the 900,000-a-year range.

Meanwhile, new U.S. firms such as Specialized, Trek USA and Cannondale were developing lightweight materials for bike frames and pushing innovation--and prices--to new levels while luring baby boomers to their products.

“Schwinn has always been very cautious with what they put on the market,” said Darryl Levesque, owner of John’s Cyclesport in Pasadena. “We dealers, especially in Southern California, have often asked why we can’t get on the market like some of the smaller companies. But, of course, the smaller companies have less to lose.”

Schwinn filed a petition for relief under Chapter 11 of the U.S. Bankruptcy Code. The step protects the company from action by impatient creditors while it tries to get its operations and finances in order.

Schwinn said its alternatives include finding an individual or another company to invest in the bike maker or merging with another firm. The company said it is not engaged in merger talks but is holding “a couple of discussions” with potential investors.

Edward Schwinn, whose great-grandfather, Ignaz Schwinn, co-founded the Arnold, Schwinn & Co. in 1895, said talks with potential investor Acadia Partners L.P. broke off this week.

About two of every three bicycles sold in this country are lower-priced models made by Huffy and Murray and sold by such mass merchandisers as Toys ‘R’ Us, Sears Roebuck & Co. and Wal-Mart. But the other third, sold in specialty shops, garner 60% of the money.

The company claims dozens of bicycle firsts over the decades, including the coaster brake, balloon tires, shoe-braking units, handlebar-mounted gear changer and knee-action spring fork. Its more notable models include the Aerocycle, Cycleplane and Autocycle in 1934; the Paramount touring bicycles in 1938, and the later Phantom, Varsity, Collegiate and Sting-Ray.

The sturdy Sting-Ray was the popular choice of California youths for modification as motorcross bikes in the 1970s, which later evolved into homemade mountain bikes. After Specialized began marketing the first factory-made mountain bike in 1981, many others firms followed.

“Schwinn could have jumped in and built one of their own, but they waited a long time to do that,” said dealer Levesque.

Yet the Schwinn name continues to rank No. 1 in familiarity and “intent to buy” surveys conducted by Bicycling magazine, said Chuck McCullagh, editor and publisher.
“Schwinn’s greatest contribution is more sociological,” McCullagh said. “They manufacture a bike for a cross-section of the American public and family. They kept cycling alive and well in the 1950s and 1960s at a time when bicycles were getting pushed aside as transportation.”

Edward Schwinn, taking over from his father, Frank, in 1979, is credited with modernizing the company’s marketing programs. Schwinn also took a cue from competitors and began buying more parts from Japanese suppliers and improving its technology through such moves as the 1988 purchase of Cycle Composites Inc. of Watsonville, Calif., maker of advanced carbon-fiber bicycles.

Schwinn said it is a “cheap, easy shot” to say the company was not paying attention in the 1970s. He attributes Schwinn’s crisis to the heavy debt it took on in the 1980s, including the cost of closing its ancient Chicago factory to escape high labor and other costs.

Last year, Schwinn closed its only remaining high-volume U.S. plant in Greenville, Miss. It makes expensive, hand-built Paramount bicycles in Wisconsin, but most of its bikes are made in China and Hungary. Most bike production has moved to the Far East.

Schwinn has redesigned its 1993 product line, which has received good reviews from the cycling trade press. The company got 25% of its $190 million sales last year from fitness equipment, such as stationary bikes, and says it hopes to expand that part of its business.

[More tomorrow]
 

Schwinn, Venerable Bike Firm, Files for Bankruptcy : Business: Company vows to remain in operation, but it seeks a merger or investor to restructure its debt.​

BY DONALD WOUTAT
OCT. 9, 1992 12 AM PT
TIMES STAFF WRITER


“Schwinn has always been very cautious with what they put on the market,” said Darryl Levesque, owner of John’s Cyclesport in Pasadena. “We dealers, especially in Southern California, have often asked why we can’t get on the market like some of the smaller companies. But, of course, the smaller companies have less to lose.”


“Schwinn could have jumped in and built one of their own, but they waited a long time to do that,” said dealer Levesque.



[More tomorrow]
It's funny how when things go bad everyone wants to point fingers. Even people that never earned the right to give business advise.

Distribution businesses work on cash flow just like any other small business. To encourage prompt payment on "due invoices" we offered the Schwinn dealerships a 2% anticipation discount if the invoice was paid in full, by the tenth of the following month. Dealers looked at this as "free money" that they could earn without doing any work, just by paying their bills in a timely manner. Schwinn Bicycle Company was very strict on their dealer credit policy. 99% of the Schwinn Dealerships paid their bills and took all their allowed discounts.

The "slow pay" 1% dealers were kept track on our monthly credit report and by our Regional Credit Manager. It was similar to other industries. 0-30 days was considered current. 30-60 days was a problem. If your account fell into the 30–60-day group your orders went directly to Kathy, our Western Regional Credit Manager. She knew all of the slow pay problem accounts and helped them control their past due balance. If your account made it into the 90 day group we had a serious problem. The Regional Credit Manager no longer had the ability to release your order, it went directly to the Western Controller Dick Hoevel (Kathy's boss) for his authorization to consider if it could be released for shipment. At 30-60 we would work with the excuses, but at 90 the KA KA hit the fan. Credit managers do not like surprises, they like to be kept informed, and it's actually in their best interest to work with the dealers on problems. You do not want to ever lose their confidence.

The dealer that was giving Schwinn Bicycle Company advice above wanted to be a heavy player in the very competitive Southern California bicycle market. He purchased a couple of dealerships, and opened a few more. At one point I believe he had five stores based along the Foothill 210 freeway from Pasadena to Rancho Cucamonga. The John's Pasadena store had a long history of large Schwinn volume, but that was under the previous ownership of longtime Schwinn dealer Don Dragaset. Just like Schwinn's over expansion and cash flow problems, this dealer did exactly the same thing with over expanding, and never paid his invoices on time, or earned his discounts. His past due bills with his five dealership accounts were sizeable and things were coming to a head.

He felt he needed a vacation over the Christmas holidays. Instead of just keeping his mouth shut, he felt the need to send a real live Coconut to Dick Hoevel the Schwinn Sales West Controller that controlled his Schwinn Bicycle and Parts order releases. He took a felt marker, and wrote the Schwinn address in Rancho Cucamonga and Dick Hoevel's name on the side of the Coconut and mailed it from Hawaii, no box, no packing, just a Coconut arrived on Dick's desk sitting next to the 90 day past due report. He further put gas on the fire by writing "having a great time, wish you could be here". Talk about ticking off a credit manager who controlled your order releases, that did it. It only took him a couple of weeks to figure out he had dug himself a very deep hole as the orders stopped.

Moral is, if your account is habitually "past due", don't tell the credit manager you're taking an island trip with his money.

It's funny now 30 plus years later.

John
 
Schwinn said it is a “cheap, easy shot” to say the company was not paying attention in the 1970s. He attributes Schwinn’s crisis to the heavy debt it took on in the 1980s, including the cost of closing its ancient Chicago factory to escape high labor and other costs.

I wonder why it cost so much to close the Chicago factories? I thought the whole point was to save money.
 
Schwinn said it is a “cheap, easy shot” to say the company was not paying attention in the 1970s. He attributes Schwinn’s crisis to the heavy debt it took on in the 1980s, including the cost of closing its ancient Chicago factory to escape high labor and other costs.

I wonder why it cost so much to close the Chicago factories? I thought the whole point was to save money.
If Wharton ever needs to come up with a course on how to kill a viable, profitable, successful company, all they'd need to do is pick up the Schwinn Bicycle Company in about 1975.

I could easily point to 10 specific reasons why they failed. What's so freakin' funny is that one man, Frank W. Schwinn, took a company wobbling from the Stock Market Crash of 1929 and navigated it through creative excellence, engineering superiority, World War II, the Korean War, anti-trust threats, etc. and made it a world leader, all before his death in 1963. 20 short years later, the once massive giant folded like cheap suit, crushing debt, family infighting, no direction home.

It's easy to look in the rear view mirror, but everything that caused the failure was right there in plain view just in front of the windshield. Leadership failed. Frank W. Schwinn would have made a killing!
 
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